EAGLE FINANCIAL SERVICES INC

Previous wording

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At September 30, 2024, the Company had total assets of $1.88 billion, net loans of $1.47 billion, total deposits of $1.55 billion, and shareholders’ equity of $117.8 million. The Company’s net income was $9.2 million for the nine months ended September 30, 2024.

Current wording

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At March 31, 2025, the Company had total assets of $1.90 billion, net loans of $1.44 billion, total deposits of $1.61 billion, and shareholders’ equity of $176.5 million. The Company’s net loss was $7.0 million for the three months ended March 31, 2025.

Previous wording

The Company is a locally owned and managed financial institution. This allows the Bank to be flexible and responsive in the products and services it offers. The Bank grows primarily by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank attempts to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.

Current wording

The Bank is a locally managed financial institution as well as predominately locally owned. While the Company expanded its ownership to institutional investors though a public offering of its common stock in February 2025, its operating strategy remains the same. This operating strategy allows the Bank to be flexible and responsive in the products and services it offers and to further grow by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank strives to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.

Previous wording

The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank also utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards.

Current wording

The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards as well as electronic materials, emails, and social media posts.

Previous wording

The Bank’s marine loan portfolio is comprised of originated retail loans. In August 2023, the Company completed a sale of specific assets from its marine lending segment and reduced its workforce associated with the marine lending division, as it expects to cease accepting new marine lending business. As part of the sale, the Company sold its interest in marine vessel floor plan loans, its rights to service loans that had been sold to secondary market investors prior to the date of sale, and other assets that were not individually significant. Subsequent to the sale the Company retained ownership of its portfolio of marine vessel retail loans, which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.

Current wording

The Bank’s marine loan portfolio is comprised of retail marine vessel loans originated through August 2023, at which time the Company ceased accepting new marine lending business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.

Previous wording

This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP.

Current wording

This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

Previous wording

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Some issues reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the nine months ended September 30, 2024 and 2023 was 0.69% and 0.54%, respectively. For the three months ended September 30, 2024 and 2023 the Company's annualized ROA was 0.75% and 0.51%, respectively.

Current wording

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (1.48)% and 0.58%, respectively.

Previous wording

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the nine months ended September 30, 2024 and 2023 was 11.16% and 8.96%, respectively. For the three months ended September 30, 2024 and 2023 the Company's annualized ROE was 11.99% and 8.87%, respectively.

Current wording

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (20.75)% and 9.53%, respectively.

Previous wording

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $37.7 million and $38.0 million for the nine months ended September 30, 2024 and 2023, respectively, which represents a decrease of $249 thousand, or 0.66%. Net interest income was $13.2 million and $12.9 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $250 thousand, or 1.94%. The increase in the average rate paid on interest-bearing liabilities has continued to outpace the increase in the average rate earned on interest-earning assets during the three and nine months ended September 30, 2024, compared to the same periods in 2023. For the nine months ended September 30, 2024, net interest income decreased from the 2023 period primarily due to a 70 basis point increase in the average rate paid on interest-bearing deposits reflecting efforts to retain and attract account balances by offering promotional rates. For the three months ended September 30, 2024, the average rate paid on interest-bearing deposits increased 37 basis points compared to the average rate paid for the three months ended September 30, 2023, and the average balance of interest-bearing deposits grew by $61.8 million.

Current wording

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $13.3 million and $12.4 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $921 thousand, or 7.42%. For the three months ended March 31, 2025, net interest income increased from the 2024 period primarily due to an increase in the average balance of interest-earning assets of $148.1 million compared to a $90.9 million increase in the average balance of interest-bearing liabilities, while average yields earned and rates paid were relatively stable period over period. For the three months ended March 31, 2025 and 2024, the average yield on interest-earning assets was 5.25% and 5.28%, respectively and the average rate paid on interest-bearing liabilities was 3.12% and 3.10%, respectively.

Previous wording

The Company's net interest spread and net interest margin decreased 31 basis points and 19 basis points, respectively, for the nine months ended September 30, 2024 compared to nine months ended September 30, 2023. For the three months ended September 30, 2024, the Company's net interest spread and net interest margin decreased 13 basis points and 5 basis points, respectively, compared to the same period in 2023.

Current wording

The Company's net interest spread and net interest margin decreased five basis points and two basis points, respectively, for the three months ended March 31, 2025 compared to three months ended March 31, 2024.

Previous wording

Total interest and dividend income was $67.3 million and $61.1 million for the nine months ended September 30, 2024 and 2023, respectively, which represents an increase of $6.2 million, or 10.21%. Total interest and dividend income was $23.7 million and $22.2 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $1.5 million, or 6.78%. The increase in interest income was driven by an increase in the average balance of the loan portfolio along with the rise in interest rates. Average interest-earning assets increased $96.7 million, or 5.80%, when comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2024, while the average yield on earning-assets increased by 20 basis points over the same period. For the three months ended September 30, 2024, the increase in interest income on loans was primarily due to the higher yields earned as the average balances were level with the prior year period.

Current wording

Total interest and dividend income was $23.5 million and $21.9 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $1.6 million, or 7.30%. The increase in interest income was driven by an increase in the average balance of the interest-earning assets and a 35 basis point increase in the average yield on securities. Average interest-earning assets increased $148.1 million, or 8.86%, when comparing the three months ended March 31, 2024 to the three months ended March 31, 2025, while the average yield on earning assets decreased by three basis points over the same period. While the average yield on total earning assets decreased by three basis points during the three months ended March 31, 2025, the income impact was offset by the average yield earned on securities as well as the overall increase in average balances, which outpaced the increase in average balances on total interest-bearing liabilities. The main driver of the increase in the total average earning asset balances during three months ended March 31, 2025 was interest-bearing deposits in other banks reflecting proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025.

Previous wording

Total interest expense was $29.6 million and $23.1 million for the nine months ended September 30, 2024 and 2023, respectively, which represents an increase of $6.5 million, or 28.07%. Total interest expense was $10.5 million and $9.3 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $1.2 million, or 13.52%. The interest rate environment, coupled with the growth of higher-paying deposit accounts, have been the main drivers for the increase in interest expense during both the three and nine months ended September 30, 2024. Interest expense on deposit accounts increased $7.4 million, or 46.24%, during the nine months ended September 30, 2024, of which $5.3 million was attributable to time deposits. During the nine months ended September 30, 2024 and 2023 the average balance of interest-bearing deposits was $1.07 billion and $961.1 million, respectively. The $7.4 million increase in deposit interest expense was slightly offset by a decrease in interest expense on FHLB advances. The average balance of FHLB advances was $146.6 million and $168.2 million with an average rate of 4.72% and 4.77% during the nine months ended September 30, 2024 and 2023, respectively. The increase in interest expense during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to time deposits, while FHLB borrowings experienced a decrease in expense reflecting a lower level of utilization during the three month period ending September 30, 2024.

Current wording

Total interest expense was $10.2 million and $9.5 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $678 thousand, or 7.15%. Growth of higher-paying deposit accounts was the main driver for the increase in interest expense during the three months ended March 31, 2025. Interest expense on deposit accounts increased $1.1 million, or 14.55%, during the three months ended March 31, 2025, of which $1.0 million was attributable to time deposits. During the three months ended March 31, 2025 and 2024 the average balance of interest-bearing deposits was $1.18 billion and $1.05 billion, respectively. Competition for and rates paid on deposit accounts continues to be strong. The average rate paid on interest-bearing deposits for the three months ended March 31, 2025 was 2.92% compared to 2.83% for the three months ended March 31, 2024. Partially offsetting the increase in deposit interest expense was a $402 thousand decrease in interest expense on FHLB advances during the three months ended March 31, 2025. The average balance of FHLB advances was $110.6 million and $145.9 million with an average rate of 4.80% and 4.72% during the three months ended March 31, 2025 and 2024, respectively. The decrease in the average balance of FHLB advances was due to net payoffs during the first quarter of 2025, including a prepayment, reflecting usage of cash from the capital raise to lower borrowings levels.

Previous wording

The net interest margin was 2.86% and 3.05% for the nine months ended September 30, 2024 and 2023, respectively, and 2.88% and 2.93% for the three months ended September 30, 2024 and 2023, respectively. The net interest margin is calculated on a tax-equivalent basis. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2024 and 2023.

Current wording

The net interest margin was 2.98% and 3.00% for the three months ended March 31, 2025 and 2024, respectively. The net interest margin is calculated on a tax-equivalent basis. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.

Previous wording

Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21%.

Current wording

Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).

Previous wording

The tax-equivalent yield on earning assets was 5.10% for the nine months ended September 30, 2024 compared to 4.90% for the nine months ended September 30, 2023, an increase of 20 basis points during the current year period. The tax-equivalent yield on securities increased 19 basis points for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The tax equivalent yield on loans increased 30 basis points from 5.27% for the nine months ended September 30, 2023 to 5.57% for the same time period in 2024. For the three months ended September 30, 2024 and 2023, the tax-equivalent yield on earning assets was 5.17% and 5.02%, respectively, an increase of 15 basis points in the current year period. The tax-equivalent yields on securities and loans also increased during the three month period in 2024 compared to 2023 by 5 basis points and 27 basis points, respectively.

Current wording

The tax-equivalent yield on earning assets was 5.25% for the three months ended March 31, 2025 compared to 5.28% for the three months ended March 31, 2024, a decrease of three basis points during the current year period. The tax-equivalent yield on securities increased 35 basis points for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The tax equivalent yield on loans increased three basis points from 5.54% for the three months ended March 31, 2024 to 5.57% for the same time period in 2025.

Previous wording

The provision for credit losses for the nine months ended September 30, 2024 and 2023 was $2.2 million and $1.3 million, respectively. The provision for credit losses for the three months ended September 30, 2024 and 2023 was $1.5 million and $216 thousand, respectively. The provision for credit losses for the nine months ended September 30, 2024 resulted largely from a $2.0 million provision against the marine portfolio due to charge-offs of $1.5 million, a specific reserve on an individually evaluated relationship of $268 thousand, and growth in the portfolio balance as compared to the prior measurement period. Marine loan charge-offs during the nine months ended September 30, 2024 reflect a clean-up within the portfolio and not a systemic performance issue.

Current wording

The provision for credit losses for the three months ended March 31, 2025 and 2024 was $1.2 million and $475 thousand, respectively. The provision for credit losses for the three months ended March 31, 2025 resulted largely from a $1.1 million provision against the commercial real estate portfolio due to charge-offs of $971 thousand, and specific reserves on two individually evaluated relationships of $152 thousand as compared to the prior measurement period. Commercial real estate charge-offs of $971 thousand during the three months ended March 31, 2025 reflect one relationship of four loans totaling $11.5 million.

Previous wording

Total noninterest income was $5.3 million and $4.2 million for the three months ended September 30, 2024 and 2023, respectively and for the nine months ended September 30, 2024 and 2023 was $13.0 million and $11.1 million, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and nine months ended September 30, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

Current wording

Total noninterest (loss) income was $(8.6) million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Previous wording

Wealth management fee income increased from 2023 to 2024. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Higher interest rates and more favorable conditions in the stock market have resulted in an expansion of total assets under management. One-time fees for estates and other services have also contributed to the year over year increase in revenue. Investment sales have also increased as favorable market activity has made the use of brokerage and advisory investments more attractive.

Current wording

Wealth management fee income increased from 2024 to 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management which has increased over the 2024 year period. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue. These increases were partially offset by a decline in investment sales.

Previous wording

Gain on sale of loans increased during the three and nine months ended September 30, 2024 when compared to the same period in 2023. The Company sold $40.4 million in mortgage loans on the secondary market and $6.9 million SBA commercial loans during the nine months ended September 30, 2024. This compares to loan sales consisting of $21.1 million in mortgage loans, $3.1 million in SBA commercial loans, and $49.1 million of marine loans during the nine months ended September 30, 2023. Loan sales resulted in gains of $1.3 million and $913 thousand during the nine months ended September 30, 2024 and 2023, respectively. Gain on loan sales recorded during the three months ended September 30, 2024 and 2023 was $627 thousand and $265 thousand, respectively, and resulted from mortgage loan sales of $14.9 million and $4.2 million in SBA commercial loans during the third quarter of 2024 compared to mortgage loan sales of $15.9 million, marine loan sales of $10.5 million, and SBA commercial loans sales of $275 thousand during the third quarter of 2023.

Current wording

Gain on sale of loans increased during the three months ended March 31, 2025 when compared to the same period in 2024. The Company sold $35.7 million in mortgage loans on the secondary market, consisting of $14.9 million of loans originated for sale and a pool of $18.8 million residential mortgage loans held for investment, and $2.0 million SBA commercial loans during the three months ended March 31, 2025. This compares to loan sales consisting of $10.9 million in mortgage loans during the three months ended March 31, 2024. Loan sales resulted in gains of $429 thousand and $161 thousand during the three months ended March 31, 2025 and 2024, respectively. The Company intends to continue originating mortgage loans for sale, whereas the mortgage portfolio sale was completed early in the 2025 quarter, at par, and ahead of the Company's public offering in order to bolster on-balance sheet liquidity.

Previous wording

Income from holdings in small business investment companies increased $345 thousand and $532 thousand for the three and nine months ended September 30, 2024, respectively when compared to the same periods in 2023. The increases during the current year periods can be mainly attributed to higher cash distributions received, based on the results of their performance.

Current wording

Income from holdings in small business investment companies decreased $107 thousand the three months ended March 31, 2025 compared to the same period in 2024. The decreases during the current year period can be mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.

Previous wording

Total noninterest expenses decreased $1.2 million, or 8.80% for the three months ended September 30, 2024 and $1.7 million, or 4.30%, for the nine months ended September 30, 2024 compared to the same periods in 2023. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

Current wording

Total noninterest expenses increased $212 thousand, or 1.71% for the three months ended March 31, 2025 compared to the same period in 2024. The following table presents the components of noninterest expense for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Previous wording

Salaries and employee benefits decreased during the three and nine months ended September 30, 2024 over 2023, largely reflecting decreases in salaries and stock based compensation expenses while experiencing increases in employee benefits and annual incentive plan expenses. The Company's number of full-time equivalent employees ("FTE's") has decreased from 245 at September 30, 2023 to 233 at September 30, 2024. In addition to normal staffing fluctuation, the decrease in the number of FTE's was due to the sale of the marine finance assets during the third quarter of 2023. The Company reduced its workforce associated with the marine lending division and ceased accepting new marine lending business. Stock based compensation expense decreased due to a higher level of share forfeitures recognized during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Mostly offsetting these decreases were annual pay increases, an increase in the annual incentive accrual, increasing insurance costs and enhanced employee benefit plans.

Current wording

Salaries and employee benefits decreased during the three months ended March 31, 2025 over 2024, reflecting minimal decreases in salaries and bonuses mostly offset by an increase in the annual incentive plan expense. The Company's number of full-time equivalent employees ("FTE's") has decreased from 238 at March 31, 2024 to 233 at March 31, 2025.

Previous wording

Equipment expenses have increased during the three and nine months ended September 30, 2024 compared to the same periods in 2023. A new loan origination system implemented during the fourth quarter of 2023 was a significant driver of the year-over-year increase.

Current wording

Equipment expenses have increased during the three months ended March 31, 2025 compared to the same periods in 2024, reflecting costs for the implementation and build-out of loan origination systems.

Previous wording

A repossessed marine vessel was sold during the three months ended September 30, 2024, resulting in the recognition of a $204 thousand loss. There were no sales of repossessed assets during the three and nine months ended September 30, 2023.

Current wording

Three repossessed marine vessels were sold during the three months ended March 31, 2025, resulting in the recognition of a $133 thousand loss. There were no sales of repossessed assets during the three months ended March 31, 2024.

Previous wording

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three and nine months ended September 30, 2024 over 2023. The decrease in FDIC assessment for the three months ended September 30, 2024 reflects an improvement in the financial ratios portion of the assessment rate, largely due to the decline in the one-year asset growth factor. The assessment rate also includes a two basis point charge by the FDIC, which was applied to all financial institutions beginning in June 2023.

Current wording

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three months ended March 31, 2025 over 2024. The decrease in FDIC assessment for the three months ended March 31, 2025 reflects an improvement in the financial ratios portion of the assessment rate, largely due to the decline in the one-year asset growth factor.

Previous wording

The efficiency ratio of the Company was 71.34% and 84.71% for the three months ended September 30, 2024 and 2023, respectively. The efficiency ratio of the Company was 75.22% and 81.08% for the nine months ended September 30, 2024 and 2023. The improvement in the efficiency ratio during 2024 reflects an increase in noninterest income, coupled with lower noninterest expenses. Noninterest expenses during the three and nine months ended September 30, 2023 included one-time expenses of $1.0 million related to the sale of the marine finance assets during the third quarter of 2023. Excluding these expenses, the efficiency ratio for three and nine months ended September 30, 2023 would have been 78.71% and 79.02%, respectively. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

Current wording

The efficiency ratio of the Company was 72.20% and 77.73% for the three months ended March 31, 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

Previous wording

The calculation of the efficiency ratio for the three and nine months ended September 30, 2024 and 2023 was as follows:

Current wording

The calculation of the efficiency ratio for the three months ended March 31, 2025 and 2024 was as follows:

Previous wording

Income tax expense was $550 thousand and $457 thousand during the three months ended September 30, 2024 and 2023, respectively and $1.6 million and $1.4 million during the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate was 13.84% and 16.46% for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate was 15.11% and 16.49% for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate is below the statutory rate of 21% due to tax-exempt income on investment securities and loans, BOLI, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. During the three and nine months ended September 30, 2024, BOLI included income from life insurance proceeds of $653 thousand and $907 thousand, respectively. There was no income from life insurance proceeds in the comparative three and nine month periods. Qualified affordable housing project investments are discussed in Note 12 to the Consolidated Financial Statements.

Current wording

An income tax benefit of $2.1 million was recognized during the three months ended March 31, 2025 compared to income tax expense of $495 thousand during the three months ended March 31, 2024. The effective tax rate was 22.85% and 16.27% for the three months ended March 31, 2025 and 2024, respectively. The year over year comparison includes tax-exempt income on investment securities and loans, BOLI income, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. Additionally, during the three months ended March 31, 2025, the effective tax rate was also impacted by the balance sheet repositioning transactions. Qualified affordable housing project investments are discussed in Note 11 to the Consolidated Financial Statements.

Previous wording

Total securities available for sale were $130.1 million at September 30, 2024, compared to $137.4 million at December 31, 2023. This represents a decrease of $7.3 million, or 5.38%. The Company purchased no securities during the nine months ended September 30, 2024. The Company had total maturities, calls, and principal repayments of $11.7 million during the nine months ended September 30, 2024. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at September 30, 2024 and December 31, 2023. The Company had a net unrealized loss on available for sale securities of $18.3 million at September 30, 2024 as compared to a net unrealized loss of $22.8 million at December 31, 2023. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss). The primary cause of the unrealized losses at September 30, 2024 and December 31, 2023 was changes in market interest rates and other market conditions and not credit concerns of the issuers. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.

Current wording

Total securities available for sale were $109.9 million at March 31, 2025, compared to $121.3 million at December 31, 2024. This represents a decrease of $11.4 million, or 9.45%. The Company purchased $75.9 million of securities during the three months ended March 31, 2025. The Company had total maturities, calls, and principal repayments of $3.3 million and sales of $99.2 million during the three months ended March 31, 2025. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at March 31, 2025 and December 31, 2024. The Company had a net unrealized loss on available for sale securities of $8.4 million at March 31, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).

Previous wording

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.48 billion and $1.46 billion at September 30, 2024 and December 31, 2023, respectively. This represents an increase of $20.6 million, or 1.41%, during the nine months ended September 30, 2024. The ratio of gross loans to deposits decreased during the nine months ended September 30, 2024 from 97.10% at December 31, 2023 to 95.95% at September 30, 2024.

Current wording

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.45 billion and $1.47 billion at March 31, 2025 and December 31, 2024, respectively. This represents a decrease of $14.8 million, or 1.01%, during the three months ended March 31, 2025. The ratio of gross loans to deposits decreased during the three months ended March 31, 2025 from 93.14% at December 31, 2024 to 89.99% at March 31, 2025 reflecting the decrease in gross loans, compounded by a 2.45% increase in deposits during the same time period.

Previous wording

The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Note 5 to the Consolidated Financial Statements provides the composition of the loan portfolio at September 30, 2024 and December 31, 2023. During the nine months ended September 30, 2024, through the normal course of business, $47.3 million in loans were sold, consisting primarily of mortgage loans. These loan sales resulted in net gains of $1.3 million. The balance of gross loans experienced solid growth, primarily in loans secured by real estate, which more than offset decreases in the marine and consumer loan portfolios due to paydowns and a large consumer loan payoff during 2024.

Current wording

The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Note 5 to the Consolidated Financial Statements provides the composition of the loan portfolio at March 31, 2025 and December 31, 2024. During the three months ended March 31, 2025, through the normal course of business, $35.7 million in loans were sold, consisting primarily of mortgage loans. Included in the $35.7 million total loan sales was a pool of pool of residential mortgage loans totaling $18.8 million, which was at par. This pool was sold in January 2025, ahead of the Company's public offering, to bolster on-balance sheet liquidity. Loan sales resulted in net gains of $429 thousand. Loan sales and paydowns within the marine portfolio caused the balance of gross loans to experience a net decline, while being partially offset by modest loans originations, primarily secured by real estate.

Previous wording

Residential real estate loans, consisting of first liens, junior liens and home equity loans, were $367.3 million, or 24.76%, and $356.1 million, or 24.35%, of total loans at September 30, 2024 and December 31, 2023, respectively. The increase of $11.2 million, or 3.14%, is primarily due to originations of residential adjustable-rate jumbo loans held in portfolio.

Current wording

Residential real estate loans, consisting of first liens, junior liens and home equity loans, were $344.9 million, or 23.75%, and $361.8 million, or 24.66%, of total loans at March 31, 2025 and December 31, 2024, respectively. The decrease of $16.9 million, or 4.68%, is primarily due to the portfolio loan sale.

Previous wording

Commercial real estate loans (including multifamily loans) were $630.6 million, or 42.51%, and $600.3 million, or 41.04%, of total loans at September 30, 2024 and December 31, 2023, respectively, representing an increase of $30.3 million, or 5.04%, during the nine months ended September 30, 2024. Owner occupied commercial real estate loans experienced a $21.8 million increase during the nine months ended September 30, 2024, and non-owner occupied and multifamily commercial real estate loans increased $8.5 million during the same period.

Current wording

Commercial real estate loans (including multifamily loans) were $643.5 million, or 44.31%, and $639.9 million, or 43.62%, of total loans at March 31, 2025 and December 31, 2024, respectively, representing an increase of $3.6 million, or 0.55%, during the three months ended March 31, 2025. Owner occupied commercial real estate loans experienced a $3.2 million decrease during the three months ended March 31, 2025, and non-owner occupied and multifamily commercial real estate loans increased $6.8 million during the same period.

Previous wording

Construction and secured by farmland loans totaled $97.2 million at September 30, 2024 compared to $84.1 million at December 31, 2023. This increase of $13.1 million, or 15.48%, primarily reflects a $17.2 million construction loan in the current quarter with an existing commercial borrower.

Current wording

Construction and secured by farmland loans totaled $98.7 million at March 31, 2025 compared to $95.2 million at December 31, 2024, an increase of $3.5 million, or 3.63%.

Previous wording

Marine loans were $225.9 million, or 15.23%, and $251.2 million, or 17.17%, of total loans at September 30, 2024 and December 31, 2023, respectively, representing a decrease of $25.3 million, or 10.06%. The decline in marine loans reflects paydowns, payoffs and charge-offs only and no new originations. On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling

Current wording

Marine loans were $203.5 million, or 14.01%, and $210.1 million, or 14.32%, of total loans at March 31, 2025 and December 31, 2024, respectively, representing a decrease of $6.6 million, or 3.16%. The decline in marine loans reflects paydowns and payoffs only as the Company is no longer accepting new marine business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.

Previous wording

The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section in the 2023 Form 10-K. Note 5 to the Consolidated Financial Statements shows the activity within the allowance for credit losses on loans during the three and nine months ended September 30, 2024 and 2023 and the year ended December 31, 2023. Charged-off loans were $2.3 million and $314 thousand for the nine months ended September 30, 2024 and 2023, respectively. Of the total charge-offs during the nine months ended September 30, 2024, $1.5 million, or 64.50%, were marine loans reflecting clean-up within the portfolio and not a systemic performance issue. Recoveries were $754 thousand and $255 thousand for the nine months ended September 30, 2024 and 2023, respectively. This resulted in net charge-offs (recoveries) of $1.5 million and $59 thousand for the nine months ended September 30, 2024 and 2023, respectively. The annualized ratio of net charge-offs (recoveries) to average loans was 0.42% and 0.02% for the nine months ended September 30, 2024 and 2023, respectively. The allowance for credit losses on loans as a percentage of loans was 1.03% at September 30, 2024 and 0.99% at December 31, 2023. The increase as compared to December 31, 2023 was mainly attributable to net loan charge-offs and a specific reserve on a collateral-dependent commercial business loan relationship.

Current wording

The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section in the 2024 Form 10-K. Note 5 to the Consolidated Financial Statements shows the activity within the allowance for credit losses on loans during the three months ended March 31, 2025 and 2024 and the year ended December 31, 2024. Charged-off loans were $1.1 million and $705 thousand for the three months ended March 31, 2025 and 2024, respectively. Of the total charge-offs during the three months ended March 31, 2025, $971 thousand, or 90.29%, was due to one commercial real estate relationship totaling $11.5 million. Recoveries were $185 thousand for the three months ended March 31, 2025 and 2024. This resulted in net charge-offs of $891 thousand and $520 thousand for the three months ended March 31, 2025 and 2024, respectively. The annualized ratio of net charge-offs to average loans was 0.06% and 0.04% for the three months ended March 31, 2025 and 2024, respectively. The allowance for credit losses on loans as a percentage of loans was 1.05% at March 31, 2025 and 1.02% at December 31, 2024. The increase as compared to December 31, 2024 was mainly attributable to net loan charge-offs during the three months ended March 31, 2025.

Previous wording

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. Loans risk rated as special mention, which exhibit negative trends and potential weaknesses, totaled $73.4 million at September 30, 2024 compared to $33.5 million at December 31, 2023. Loans risk rated as classified, include substandard, doubtful, and loss loans, totaled $3.0 million and $8.0 million at September 30, 2024 and December 31, 2023, respectively. All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity. The increase in special mention loans of $39.9 million was primarily in the owner-occupied commercial real estate portfolio as loans were downgraded from pass as the result of not having current financial statement information available at their annual review. Upon receipt of current financial information, the loans will be evaluated and returned to a pass classification if appropriate.

Current wording

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. Loans risk rated as special mention, which exhibit negative trends and potential weaknesses, totaled $47.0 million at March 31, 2025 compared to $50.1 million at December 31, 2024. Loans risk rated as classified, include substandard, doubtful, and loss loans, totaled $18.5 million and $4.5 million at March 31, 2025 and December 31, 2024, respectively. All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity. The increase in classified loans of $14.0 million was primarily due to two large commercial real estate relationships being placed on nonaccrual status during the first quarter of 2025, including a $2.2 million owner-occupied relationship and an $11.5 million non-owner occupied relationship.

Previous wording

Nonperforming assets decreased by $3.4 million during the nine months ended September 30, 2024. Nonaccrual loans were $2.3 million and $5.6 million at September 30, 2024 and December 31, 2023, respectively. There was $99 thousand in OREO and repossessed assets at September 30, 2024 and $304 thousand at December 31, 2023. There were $251 thousand in loans past due 90 days or more and still accruing at September 30, 2024 and $181 thousand in loans past due 90 days or more and still accruing at December 31, 2023. The percentage of nonperforming assets to loans, OREO and repossessed assets was 0.18% at September 30, 2024 and 0.42% at December 31, 2023.

Current wording

Nonperforming assets increased by $13.7 million during the three months ended March 31, 2025. Nonaccrual loans were $16.1 million and $2.1 million at March 31, 2025 and December 31, 2024, respectively. There was $0 in OREO and repossessed assets at March 31, 2025 and $514 thousand at December 31, 2024. Loans past due 90 days or more and still accruing at March 31, 2025 totaled $186 thousand and $0 at December 31, 2024. The percentage of nonperforming assets to loans, OREO and repossessed assets was 1.12% at March 31, 2025 and 0.18% at December 31, 2024.

Previous wording

Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $8.2 million at September 30, 2024 compared to $2.3 million at December 31, 2023. The $5.9 million increase in past due loans was primarily due to one relationship, consisting of two real estate secured loans totaling $6.8 million, for which the loans have matured and a 90-day extension has been approved. Total past due loans as of September 30, 2024 consist of loans secured by real estate totaling $7.7 million, and consumer and commercial business loans totaling $513 thousand.

Current wording

Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $25.8 million at March 31, 2025 compared to $4.5 million at December 31, 2024. The $21.3 million increase in past due loans primarily reflects loans secured by real estate. Two relationships account for $18.6 million of the total increase and included a $7.1 million commercial construction relationship that subsequently paid off in April 2025, and an $11.5 million non-owner occupied commercial real estate relationship. Total past due loans as of March 31, 2025 consist of loans secured by real estate totaling $24.2 million, and consumer and commercial business loans totaling $1.6 million.

Previous wording

During the nine months ended September 30, 2024, nonaccrual loans decreased by $3.3 million and totaled $2.3 million at September 30, 2024 compared to $5.6 million at December 31, 2023. The decrease primarily reflects $4.2 million in payoffs of two commercial real estate loans and three residential investor real estate loans and loan charge-offs totaling $651 thousand. These decreases were partially offset by two commercial business loan relationships totaling $937 thousand and a $748 thousand owner-occupied commercial real estate loan added to nonaccrual loans during the nine months ended September 30, 2024. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At September 30, 2024 there was a $268 thousand allowance for credit losses required on the commercial business loan relationship due to a potential deficiency in collateral value. There was no allowance for credit losses required on nonaccrual loans at December 31, 2023.

Current wording

During the three months ended March 31, 2025, nonaccrual loans increased by $14.1 million and totaled $16.1 million at March 31, 2025 compared to $2.1 million at December 31, 2024. The increase was primarily due to an $11.5 million non-owner occupied commercial real estate relationship secured by multi-family housing units and a $2.2 million owner-occupied commercial real estate relationship, which are both fully collateralized. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At March 31, 2025 there was a $152 thousand specific allocation required on two commercial business loan relationships due to a potential deficiency in collateral value, compared to $248 thousand at December 31, 2024.

Previous wording

Total deposits were $1.55 billion and $1.51 billion at September 30, 2024 and December 31, 2023, respectively. This represents an increase of $39.6 million or 2.63% during the nine months ended September 30, 2024. Note 7 to the Consolidated Financial Statements provides the composition of total deposits at September 30, 2024 and December 31, 2023. The total increase in deposits was in both core accounts, which increased $15.9 million and non-core accounts, which increased $23.7 million. During the first three quarters of 2024, noninterest demand deposits experienced a decline of $23.0 million, while savings and interest bearing demand deposits declined $838 thousand. Total time deposits increased $63.5 million during the nine months ended September 30, 2024 reflecting increases of $33.9 million and $29.6 million for time deposits with balances less than $250,000 and time deposits with balances $250,000 and more, respectively. Marketing efforts, including rate specials, have been utilized to maintain maturing accounts and to acquire new time deposit accounts. Core deposits, consisting of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, totaled $1.29 billion, or 83.53% of total deposits at September 30, 2024 compared to $1.28 billion, or 84.67%, of total deposits at December 31, 2023. At September 30, 2024, over 75% of deposits were fully FDIC insured.

Current wording

Total deposits were $1.61 billion and $1.58 billion at March 31, 2025 and December 31, 2024, respectively. This represents an increase of $38.6 million or 2.45% during the three months ended March 31, 2025. Note 6 to the Consolidated Financial Statements provides the composition of total deposits at March 31, 2025 and December 31, 2024. The total increase in deposits was in core accounts, which increased $42.2 million partially offset by a decrease in non-core accounts of $3.6 million. During the first quarter of 2025, noninterest demand deposits experienced an increase of $15.2 million, while savings and interest bearing demand deposits increased $18.3 million. Total time deposits increased $5.1 million during the three months ended March 31, 2025 reflecting increases of $6.3 million for time deposits with balances less than $250,000 and a decrease of $1.2 million in time deposits with balances $250,000 and more. Marketing efforts, including rate specials, have been utilized to maintain maturing accounts and to acquire new time deposit accounts. Core deposits, consisting of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, totaled $1.34 billion, or 83.13% of total deposits at March 31, 2025 compared to $1.30 billion, or 82.49%, of total deposits at December 31, 2024. At March 31, 2025, over 75% of deposits were fully FDIC insured.